Tanzania shilling gains on tight liquidity

The shilling strengthened slightly against the dollar on Wednesday, with local currency tightness in the money markets curbing dollar demand.

Money experts suggest that the market had not yet fully recovered from a long Easter weekend and Karume-day holiday, serving the shilling from further decline. 

The shilling, according to Bank of Tanzania, traded around 1794/- but went down slightly on Thursday by 74 cents to 1794/77.

National Microfinance Bank (NMB) said shilling liquidity remained tight in the interbank market, with overnight and short-

“However this tightness is expected to ease as liquidity returns to the market gradually,” NMB said in an e-Market report.

The bank said the trend “liquidity tightness” following the quarter end will likely continue to prop up the shilling, until money circulation returns in the market.

The shilling stability might be a temporarily phenomenal until “importer demand begins putting sizeable pressure on the local currency,” NMB said on Thursday. Another bank, CRDB quoted the shilling in ‘Market Highlights’ trading at that 1850/1860 against US dollar.

“The shilling remained stable against the US Dollar during (Wednesday’s) yesterday’s trading session,” CRDB said. The bank predicted that the shilling might appreciate as inflows are started to be seen at the market.

“We expect that the local currency may appreciate due to inflows,” CRDB said. Since the year started up to yesterday, the shilling fell by 3.6 per cent versus the greenback but appreciated by 1.65 per cent to 2,641/- against pound sterling and 5.85 per cent to 1,932/- against Euro.

Internationally, the dollar fell on Wednesday, retreating from a near three week high hit against the yen the previous day, after the Bank of Japan kept monetary policy unchanged despite slowing inflation.

Some had begun to expect further easing in view of the fact that the BOJ has missed its ambitious target of achieving 2.0 per cent inflation in two years.

Meanwhile, the Ugandan shilling extended gains on Thursday for a second straight day, helped by tight local currency liquidity and a policy tightening move by the central bank.

At 0810 GMT commercial banks quoted the shilling at 2,965/2,975, stronger than Wednesday’s close of 2,980/2,990. “Much of the appreciation is being fuelled by scarcity of shillings,” said Shahzad Kamaluddin, trader at Crane Bank.

“But also the gains have more to do with the fact that players are betting on a stronger (local) unit after on Thursday’s rate move.”

Kamaluddin said the market was low on local currency liquidity despite this week’s BoU injection of about 213 billion shillings ($72 million) via a reverse repo.

The central bank, Bank of Uganda (BoU), on Wednesday raised its policy rate by 100 basis points to 12 per cent from two months ago, citing a need to prevent a rise in core inflation spurred by a weak local currency.

The shilling has been largely trading on a weak footing for most of this year, sapped by a globally bullish greenback and strong corporate appetite.

Market players have also been rattled by the government’s plans to increase its spending ahead of next year’s presidential and parliamentary elections.

A trader at another bank said the shilling would trade between 2,950-3,000 in coming days with a bias for strengthening, as companies were unlikely to buy dollars ahead of mid-month tax payments made in the local currency.

Source: Daily News, reported from Dar es Salaam, Tanzania

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